A buyer's upfront?

The leverage shifts in an almost recessionary ad market

By By Steve McClellan

You know the upfront market is going to be down when the sellers start projecting a decline. And, although they don't want to be quoted, that's what they were saying privately last week: that the overall pool of broadcast upfront dollars this year won't match the $8.2 billion that flowed in a year ago.

But the big question is whether the networks-broadcast and cable-can hold their pricing on a cost-per-thousand-viewers basis, which is how advertising is sold in the TV business.

On that point, the pre-upfront posturing has begun right on cue. Buyers, sensing an opportunity in an almost recessionary ad market, are clamoring for price reductions. The sellers retort that they fully expect to get modest price increases, although that's widely interpreted as meaning they want to hold pricing at least to current levels.

For the past several years, the positioning has been just the reverse: the networks calling for and getting big increases, advertisers desperately trying to hold the line.

But this year, the leverage has shifted to the buyers, says John Lazarus, director of national broadcast for TN Media. "It's the softest marketplace in a dozen years. There's going to be a lot less money, the economy is not sound, and everyone is a little nervous. It's just going to be a buyer's market."

Lazarus estimates that the broadcast upfront may drop from last year's $8.2 billion to $7.6 billion or $7.7 billion this year. Mergers and acquisitions on the client side are lowering the pool of dollars, as well, he says. "In part, consolidation is designed to give some economies of scale. So two $200 million accounts don't equal a four; they equal a three."

Executives say at least two factors have to play out before the pricing issue gets resolved: the looming Hollywood strikes and the economy.

While the networks may be prepared for a strike, if one does occur, they will take a ratings hit. In fact, network sales staffs are currently preparing two sets of rates. One set assumes a strike, the other doesn't.

If a strike occurs, network sources estimate, the six networks combined would probably drop 10% to 15% in the ratings, and those with high-appeal sports programming and reality fare would be better off.

TV executives still hope a strike can be averted. CBS Television President and CEO Leslie Moonves, presenting the network's development slate to Madison Avenue last week, told attendees that he is "hopeful and semi-optimistic" that issues with both the writers and the actors will be settled by the respective May and June deadlines.

Still, the networks aren't just going to hand over the keys to the store in negotiations with advertisers, no matter what the economy looks like, strike or no strike. Viacom chief Mel Karmazin stated last month that he is prepared to sell dramatically less network inventory this upfront if advertisers won't pay the desired price. He said CBS might sell as little as 55% of the network's inventory upfront and take the risk that pricing in the scatter market would be higher.

Executives at other networks say the only way that strategy would work is if other networks followed suit. "You can't do 55% if everyone else does 80%," said the top sales executive at a major network. "You can't recover from that."

But executives at two of the other Big Four networks say they're considering selling less inventory in the spring if advertisers don't come close to meeting their price expectations.

Lazarus, for one, doesn't think it will happen. "If they're going to shut down early, we're going to move a lot of money to other places," he says of CBS. Karmazin is "not going to tell us how to run a marketplace. The marketplace runs the marketplace. It's way out of anyone's control."